The largest single problem with the budget deficits as the next few years unfold is not the low government receipts due to a poor economy. It is not defence spending or discretionary programs. The really difficult hurdle is that the costs of Medicare, Medicaid, and Social Security rise rapidly over the next decade because of healthcare cost inflation and the aging population.
For the first time, the cost of government health programs will pass the combined expenses for healthcare in the private sector.
According to The Wall Street Journal, “government programs next year will account for more than half of all U.S. health-care spending, federal actuaries predict, as the weak economy sends more people into Medicaid and slows growth of private insurance.”
The tragedy is that the problem will not be solved no matter how large federal deficits, the national debt, and debt service become. No sane politician is about to run for election or re-election on a platform that includes cutting benefits to the ill and aged even though these federal programs could effectively bankrupt the nation a decade from now.
Moody’s warned the US government once again that the growth in deficits and lack of growth in GDP are a threat to America’s Aaa rating. The cost of raising money in the global capital markets could increase markedly for the US if it has to pay higher interest rates due to a deteriorating credit picture. Even a modest reduction in the pace at which public healthcare costs are rising could make a major contribution to the country’s financial woes. But, that won’t happen. The baby boomers are getting too old.
Douglas A. McIntyre
Top Gaining Stocks
Top Losing Stocks